Brazil Sells $3.5 Billion in First Dollar Bond This Year

Brazil issued $3.5 billion of
government bonds in exchange for cash and old debt securities,
offering the country’s longest maturity in its first dollar-denominated offering this year.

The country issued the bonds due in 2045 to yield 5.131
percent per year, the Treasury said in a statement today. The
country raised about $1.5 billion of new cash, according to a
person familiar with the offering who asked not be identified
because the details haven’t yet been made public. The country
also swapped new bonds for outstanding securities with
maturities ranging from 2024 to 2041, according to the
statement.

Brazil tapped the bond market a week after Fed Chair Janet
Yellen reiterated in congressional testimony that U.S. borrowing
costs will probably stay low for a “considerable period,”
making emerging-market assets more attractive. The Latin
American country sold 1 billion euros ($1.3 billion) of seven-year bonds in March to yield 2.961 percent just three days after
Standard & Poor’s lowered Brazil’s credit rating by one step to
the lowest level of investment grade.

“The timing for the offering can be considered ideal,”
Siobhan Morden, the head of Latin America strategy at Jefferies
Group LLC in New York, said in a telephone interview. “There is
still appetite for emerging-markets assets and for a credit name
like Brazil.”

Brazil’s dollar bonds yield an average 2.05 percentage
points more than U.S. Treasuries, compared with 2.30 percentage
points at the end of 2013, according to index data from JPMorgan
Chase & Co.

October Offering

The sale may be extended to Asian investors by as much as
$50 million, and the final result of the operation will be
anounced once the sale in Asia is over, the Treasury said.

A press officer at Brazil’s Finance Ministry did not reply
to phone call or an e-mail seeking details on the transaction.

The Latin American country last sold dollar bonds in
October, when it issued $3.2 billion of securities maturing in
2025 to finance overseas buybacks.

Among Brazilian issuers that issued dollar bonds this month
are state-controlled bank Caixa Economica Federal, which sold
$500 million of bonds maturing in 2024, and pulp producer Klabin
Finance SA, which sold the same amount of 10-year notes.

“The objective of the operation is to improve the curve of
the sovereign debt in dollars,” the Treasury said in the
statement. Bank of America Corp., Deutsche Bank AG and Banco
Itau BBA SA will coordinate the sale, the Treasury said.

Growth Estimate

The latest bond offering comes as President Dilma Rousseff
is facing a combination of stalled growth and above-target
inflation as the October election approaches.

Analysts cut their growth estimate for an eighth
consecutive week, forecasting a 0.97 percent expansion of gross
domestic product following a 2.5 percent increase in 2013,
according to the median of about 100 estimates in a central bank
survey published July 21.

Policy makers held the target lending rate at 11 percent
for a second straight meeting on July 16 after nine consecutive
increases to curb accelerating inflation.

S&P lowered Brazil by one step on March 24 to BBB-, citing
the nation’s sluggish economic growth and Rousseff’s
expansionary fiscal policies.